If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600,it has a
A)$600 increase in excess reserves and no increase in required reserves.
B)$600 increase in required reserves and no increase in excess reserves.
C)$510 increase in excess reserves and a $90 increase in required reserves.
D)$90 increase in excess reserves and a $510 increase in required reserves.

Question

Quizplus · Accepted Answer

The required reserve ratio is 15%, so the bank must hold $90 (15% * $600) in required reserves. Since the bank desires to hold no excess reserves, it will use the remaining $510 ($600 - $90) to increase its excess reserves. Therefore, there is a $510 increase in excess reserves and a $90 increase in required reserves. Option A is incorrect because it suggests that the bank desires to hold excess reserves, which is not the case. Option B is incorrect because there is no reason for the deposit to lead to an increase in required reserves. Option D is incorrect because it switches the amounts for excess and required reserves.

If a Bank That Desires to Hold No Excess Reserves